Category: M&A

IBM reaches into the app layer for Varicent

Brenon Daly

Contact: Brenon Daly

IBM has mostly stayed away from acquiring application vendors, reaching instead for companies that typically either bolster its sprawling Global Services division or infrastructure software business, particularly in the management layer. Big Blue stepped a bit out of its regular acquisition area on Friday with the purchase of sales performance management (SPM) vendor Varicent Software. IBM is adding Varicent, which helps companies manage quotas and incentives for sales agents, into its Smarter Analytics division.

Although IBM didn’t disclose terms of the deal, we estimate that nine-year-old Varicent was generating about $35m in sales, give or take a few dollars. That would make it less than half the size of its publicly traded SPM rival, Callidus Software, which increased revenue 18% in 2011 to $84m. Callidus currently trades at slightly north of 3 times trailing sales. Slapping that multiple on Varicent gives a price in the neighborhood of $100m, which is probably a reasonable starting point for valuation.

Of course, Callidus’ current valuation doesn’t reflect any acquisition premium that an acquirer would have to pay. Also, we would probably make the case that Callidus has a more valuable revenue stream, given that more than half of its revenue comes from subscriptions. (Last year, Callidus reported that SaaS revenue hit $45m of the $84m in total sales. More importantly, the subscription business grew twice as fast as the company’s overall revenue.) Varicent was more of a traditional software provider, with license and maintenance plus a bit of consulting. Finally, one other SPM vendor to keep an eye on is Xactly. We understand that company, which has raised roughly $70m in venture backing, may be looking to go public in 2013.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Citrix consolidates collaboration

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its third collaboration deal in the past 18 months, Citrix Systems said Wednesday that it will acquire small Copenhagen-based startup Podio. The target provides team collaboration SaaS for SMBs, apparently mostly through a ‘freemium’ model. Its product is used for project management, social information sharing, sales lead management and employee recruitment management. It also provides related Apple iPhone and Google Android applications. But Citrix isn’t the only company consolidating in the collaboration market – its Podio buy comes at a time of record interest in this sector.

While there are many collaboration vendors in the market, Podio has a different approach – it enables users to create their own applications to carry out specific tasks. This allows teams to tweak the platform to cater to their specific needs. Citrix will integrate Podio into its GoTo cloud services suite, making it easy for existing customers to adopt the platform. Podio already integrates with Dropbox, Google Docs and Box.

Citrix isn’t disclosing terms of the acquisition, but we suspect that the three-year-old firm probably generated less than $5m in revenue. Podio claims tens of thousands of customers in 170 different countries, but the majority of them are likely only using its free product. If our revenue assumption is correct, then this deal should be considered more of ‘tech and talent’ play than anything else. Citrix traditionally pays above-average valuations, but we doubt that it paid more for Podio than the $54.2m it forked over in its last collaboration acquisition – ShareFile. The 27-employee firm had raised a total of $4.6m from Sunstone Capital, CEO Tommy Ahlers and private investors Thomas Madsen-Mygdal and Ulrik Jensen.

Beyond Citrix’s recent consolidation, the collaboration market is seeing increasing interest overall. The 451 M&A KnowledgeBase shows 79 collaboration acquisitions in 2011 – nearly double the volume in 2010 and an all-time record. Throughout the collaboration sector, some of the most notable transactions since the beginning of 2011 include Yammer buying oneDrum (announced just today), salesforce.com reaching for Manymoon and Dimdim, Citrix competitor VMware acquiring Socialcast and SlideRocket, and Jive Software picking up OffiSync (click on the links for disclosed and estimated valuations). Jive itself made its own splash in social collaboration when it went public in December. The company hit the Nasdaq at $850m and has since seen its market cap balloon to nearly $1.6bn, or 14 times projected 2012 revenue.

Citrix’s collaboration acquisitions

Date announced Target Collaboration sector Deal value
April 11, 2012 Podio Team collaboration Not disclosed
October 13, 2011 Novel Labs (aka ShareFile) File sharing & team collaboration $54.2m
December 17, 2010 Netviewer AG Web conferencing $115m

Source: 451 Research M&A KnowledgeBase; Click on the links for disclosed and estimated valuations

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Dell picks up the pace

Brenon Daly

Contact: Brenon Daly

As a relative latecomer to the M&A market, Dell is making up for lost time. The company on Thursday announced its third acquisition of the week, reaching for Vancouver-based Make Technologies. Both Make and Clerity Solutions, which Dell picked up on Tuesday, produce migration software and will be slotted into the services division. Dell’s other purchase of the week was thin-client technology vendor Wyse Technology.

The recent frenetic M&A activity by the Austin, Texas-based company represents a dramatic reversal from its historic practice. For the first 30 years of its life, Dell rarely acquired anything. It only really started its M&A program in mid-2007 – a point by which many rivals already had consolidated broad patches of the tech landscape. While Dell sat out of the market, IBM, for instance, had already purchased more than 60 companies, buying its way into storage, document management, security and other areas. In the same period, Oracle gobbled up some 40 companies.

But it’s a different story so far this year. With five deals notched already in 2012, Dell has more transactions than IBM and Oracle combined. The contrast is even sharper with Dell’s nemesis Hewlett-Packard, which has yet to print a deal in 2012. In fact, just looking at the acquisitions that Dell has inked recently, many of them appear designed to bolster offerings where Dell goes up against its reeling rival, such as networking, security and storage.

Dell deals

Year Number of transactions
2012, YTD 5
2011 3
2010 7
2009 4
2008 1
2007 6
2006 2
2005 0

Source: The 451 M&A KnowledgeBase

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HomeAway finds its way back into the market

Brenon Daly

Contact: Brenon Daly

As a private company, HomeAway was a steady buyer. Founded in 2005, the vacation rental website had notched 11 transactions through last year. When it went public last June, the company raised $216m. With the new cash – not to mention shares that, at least initially, were richly valued – HomeAway had plenty of resources to continue its shopping. But that’s not the way it played out for the consolidator.

The company only stepped back into the M&A market earlier this week, reaching for Top Rural, a Madrid-based site that offers vacation rentals in small towns and the countryside in Europe. (The purchase comes roughly 11 months since HomeAway’s previous acquisition, the second-longest M&A dry spell at the company.) What’s more, it’s a rather small step back into the market. HomeAway, which held some $184m in cash and short-term investments at the end of December, is handing over just $19m for Top Rural.

With Top Rural, HomeAway returns to an acquisition strategy it has frequently used: geographic expansion. The Austin, Texas-based company has reached for similar rental sites in Australia, Brazil, France and the UK. (Currently, HomeAway has listings in some 168 countries.) In its other international shopping trips, HomeAway has paid between $2m and $45m for the sites.

A popping tech IPO market

Brenon Daly

Contact: Brenon Daly

If the overwhelmingly bullish equity market didn’t do much for M&A in the first months of 2012, it certainly gave a big boost to the companies looking to go public. Investors have handed out double-digit valuations to a number of IPO candidates so far this year, pushing several new offerings above the magical threshold of $1bn in market capitalization. That has sparked a rethink about exits by startups and their backers, who had been banking almost exclusively during the recession on selling their companies. (Overall, as we recently noted, spending on tech M&A in Q1 dropped to its lowest quarterly level in two years.)

A quick look at the list of Q1 offerings arguably shows a healthier period for tech IPOs than at any point in the past decade: Guidewire Software, which went public in January, has doubled since its debut and currently trades at a $1.5bn market value. ExactTarget has created even more market value since its March offering, which gave the company the largest capitalization of any SaaS company on its debut. Millennial Media nearly doubled during its March debut, valuing the mobile ad platform vendor at nearly $2bn. In late February, Bazaarvoice went public above its expected range and has risen steadily since then. The social commerce firm commands a valuation of $1.1bn, roughly 10 times the sales it recorded in 2011. Demandware trades at an even steeper multiple: Its $800m market cap works out to an eye-popping 14 times last year’s sales.

And, if anything, the current quarter should build on the momentum established by the IPO market at the start of the year. All investor eyes are looking ahead to the seminal offering from Facebook, which is reportedly set to take place next month. The social networking site, which filed its prospectus on February 1, is likely to start its life as a public company valued at about $100bn. That’s an astounding valuation for a company that earned $1bn on sales of $3.7bn in 2011.

While Facebook is pretty much a once-in-a-generation IPO, the buzz it generates will undoubtedly spread beyond the specific offering and even the consumer Internet sector. That will likely help entice more IPO candidates to put in their paperwork, as well as boost the fortunes of those that do make it to market.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

M&A spending slump to start 2012

Brenon Daly

Contact: Brenon Daly

With Q1 set to wrap on Friday, M&A spending is on track for its lowest quarterly level in two years. The aggregate value of all tech transactions announced around the globe in the first three months of 2012 slipped to just $31bn, lower than both the previous quarter (Q4 2011) and the same quarter last year (Q1 2011).

The declining M&A activity comes as the overall economic environment has improved dramatically from 2011. For instance, there haven’t been emergency bailouts or historic downgrades of sovereign debt so far this year. Even Europe, which was the epicenter for much of the recent economic woes, is back growing again after actually contracting in the fourth quarter.

Reflecting that renewed optimism, the Nasdaq index has poked above 3,000 for first time since late 2000. During the quarter, the index recorded an almost uninterrupted ascent, gaining an astounding 19% since the start of the year. On top of the ever-increasing share price, most tech companies are continuing to stuff cash into their treasuries at a record rate.

So there are plenty of resources – in the form of both market confidence and acquisition currency – to do transactions. And yet few companies are shopping, at least not for significant purchases. In Q1, we recorded just eight transactions valued at $1bn or more – compared with an average of 12 big-ticket deals announced in each quarter last year.

Recent quarterly deal flow

Period Deal volume Deal value
Q1 2012 882 $31bn
Q4 2011 874 $38bn
Q3 2011 955 $63bn
Q2 2011 952 $71bn
Q1 2011 914 $47bn

Source: The 451 M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Millennial Media doubles on debut

Ben Kolada

Contact: Ben Kolada

Taking advantage of the emerging market for mobile advertising, platform vendor Millennial Media leapt onto the public stage Thursday, creating nearly $2bn in market value in its debut on the New York Stock Exchange. The company priced its 10.2 million shares at $13 each – the high end of its proposed range. Shares traded at about twice that level in early afternoon. Millennial Media is trading under the symbol MM. Morgan Stanley, Goldman Sachs and Barclays led the offering, while Allen & Company and Stifel Nicolaus Weisel served as co-managers.

Millennial Media, which has nearly 75 million shares outstanding, currently garners a market cap of $1.9bn. That values the company at 18 times trailing sales, in the ballpark of where we estimate Quattro Wireless was valued in its sale to Apple, but about half the valuation we believe AdMob received from Google. Those two companies are Millennial’s primary rivals, although Millennial stakes its claim as the largest independent mobile ad platform provider.

Interest in advertising technology has been building throughout both the equity and M&A markets. Earlier this month, for instance, telco SingTel announced that it was acquiring Amobee for $321m. (We estimate the startup, which provides mobile ad campaign management software, garnered roughly 9x trailing sales in its purchase by the Singapore telco giant.) Meanwhile, the Adtech pipeline is far from dry, even after a recent slew of big-ticket exits. Earlier this month, advertising intelligence firm Exponential Interactive filed its paperwork to go public. The company, which plans to trade under the symbol EXPN, increased revenue 35% last year to $169m.

Acquisitions drive EnerNOC

Contact: Brenon Daly, Thejeswi Venkatesh

EnerNOC and Comverge both went public in 2007, barely a month apart from each other. Since then, however, the paths of the two energy demand response vendors have diverged dramatically. EnerNOC’s revenue has more than quadrupled from $61m in 2007 to $287m in 2011. Meanwhile, Comverge has plodded along, growing at less than half the rate of its rival. But the real problem with the company wasn’t its top line, but rather its liquidity position: Comverge was on the verge of breaching its debt covenants.

It was that shaky financial position that helped to push Comverge into a capitulation sale to H.I.G. Capital earlier this week. The buyout firm is paying just $49m, or $1.75 for each share. (That basically equals the trading price for Comverge over the past week but is a far cry from when the stock changed hands above $30 back in 2007.) H.I.G.’s offer values Comverge at a measly 0.4 times trailing sales. That’s about half the valuation that EnerNOC currently garners, and that’s after shares of the company have lost nearly two-thirds of their value over the past year or so.

So how did the rival firms end up in such different places after starting from a similar spot? Part of the answer may have to do with the M&A activity from each of the players. EnerNOC has spent more than $60m on four acquisitions over the past three years, while Comverge shied away from rolling the dice on M&A.

Select EnerNOC deals

Date Announced Target Deal value Focus
July 6, 2011 Energy Response $30.1m Demand-side response aggregation
January 26, 2011 M2M Communications $28.6m Wireless sensors for remote monitoring
March 24, 2010 SmallFoot $1.4m Demand control software

Source: The 451 M&A KnowledgeBase

Monitise pays out now for payoff later

Ben Kolada

Contact: Ben Kolada

Mobile banking and payments vendor Monitise made a big bet on Monday when it moved to consolidate its industry with the acquisition of startup Clairmail. At first glance, the deal should have set off alarms among Monitise’s investors. The all-stock transaction will significantly dilute Monitise’s shareholders, leaving them owning three-quarters of the combined company. However, its investors remained calm – Monitise’s share price closed down only 2%. Why? Although the deal is richly valued and dilutes Monitise’s shareholders, those same investors are all but assured of their own rich payoff eventually.

Another explanation for the muted shareholder response is that the transaction only seems overvalued on the surface. It is actually fairly valued by several metrics. Monitise’s £109m ($173m) offer values Clairmail at 9.3 times trailing sales, a smidgen below its own current 10x enterprise value (Monitise held $68m in net cash at the end of 2011, while Clairmail had $5m). Further, Monitise is also obtaining more valuable customers. Clairmail had 48 banking customers generating a total of $18m in revenue last year, or about $375,000 per customer. Monitise, meanwhile, had more than 250 customers, each of which generated an average of less than $150,000 in annual revenue. And because of Clairmail’s growth rate (its revenue jumped 90% in 2011), its price-to-projected-sales valuation is certain to be much lower. Further placating investors, Monitise is forecasting continued heady growth. The combined company, which would have generated $56m in revenue in 2011 on a pro forma basis, is projecting 2012 total revenue close to $100m.

There’s certainly no reason for alarm among the acquirer’s investors, considering valuations across the mobile payments industry are already high and the potential for Monitise itself to one day find a fruitful takeover offer. In July, eBay announced that it was buying Zong for $240m. And in June, Visa announced that it was buying Fundamo for $110m, or about 11x estimated trailing sales. The latter deal is of particular note, given the growing relationship between Visa and Monitise. Following the Fundamo buy, will Visa make a larger play in mobile payments, perhaps by acquiring Monitise? The two companies are already partners – Visa Europe made a $38m investment in Monitise in October, the two companies equally share a joint venture in India and Visa Europe president and CEO Peter Ayliffe sits on Monitise’s board. And as of February 28, Visa and Visa Europe combined owned 21% of Monitise’s equity.

For more real-time information on tech M&A, follow us on Twitter: @MAKnowledgebase.

NEC converges on business support systems

Contact: Thejeswi Venkatesh

Close on the heels of its announced restructuring, NEC has inked the biggest acquisition in its history. Taking advantage of a strong yen, the Japanese tech giant said last week that it will acquire Convergys’ information management division for $449m. In some ways, the dramatic overhaul at NEC was overdue. But that does not mean the nearly half-billion-dollar bet is certain to pay off.

The company is rolling the dice on M&A as its core business continues to shrink. In recent years, revenue at NEC has dropped about one-third, sliding from ¥4,652bn($41.4bn) in 2007 to ¥3,100bn($40.1bn) in 2011. When the company announced a drastic restructuring in January, it indicated that it would refocus on the IT services, carrier network and social infrastructure sectors. While the latest acquisition bolsters NEC’s IT services division, it is picking up a business that hasn’t done too well under its previous ownership.

According to public filings, sales at Convergys’ information management business unit slid from $723m in 2007 to $329m in 2011. The decline came even as Convergys spent more than $80m over the past three years trying to resurrect the division. All of this underlines the difficulties that NEC, which has precious little experience with acquisition and integration, faces in getting a return on its purchase of Convergys’ castoff business.